An estate takes lifetimes to build but can be lost in the blink of an eye. Most of us don’t imagine assets that took decades to accumulate being drained in a few short years, but all too often this is exactly what happens. Here are some of the top risks to an estate and some easy ways to manage those risks. It’s important to note that all these risks, and the strategies to deal with them, are best dealt with while the person looking to leave a legacy is still alive and healthy. It’s far more difficult, if not impossible, to protect an estate “after the fact”.
Counting on death AND taxes
A quality estate plan takes into account that fact that if we die with significant wealth, Uncle Sam is going to take a big piece of the pie.
This is particularly painful if assets aren’t easily liquidated. Consider the example of an individual or couple that is heavily invested in real estate. Vacation homes and commercial properties make a wonderful gift for the next generation, but if their value is significant enough they can trigger high estate taxes. Even if a family wants to part with these hard-earned assets they can take months or years to sell, and in the meantime the tax man needs to be paid.
This is a situation where the right kind of insurance can provide enough cash on hand to pay estate taxes on these properties and keep them in the family for generations to come. This way the full value of the real estate is kept by the inheritors, the government is paid in full, and the estate plan is fulfilled without drama.
Inheritors are unpredictable, especially when nobody is watching
When leaving significant wealth to children and grandchildren it’s hard to know what they will do with it. Personal issues like spending habits, failed relationships and substance addictions can quickly deplete even the best funded inheritance.
For this reason it can make sense to consider putting assets into a trust so as to control the pace and purpose of distributions. As an added benefit a trust can help protect assets from creditors, meaning that inheritors who are sued or owe money won’t necessarily lose their inheritance to a lender or litigious third party.
The need for extended care is increasing, but it can be very costly
Few things are more devastating for a family than the depletion of a well thought out estate plan by extended long term care for a loved one. We all want to live a long life, and medical technology has done marvels to increase life spans, but this also means that it’s possible to survive with debilitating illnesses and injuries for years. 70% of people who are 65 and older will need extended long term care, with men requiring 2.2 years and women 3.7 on average. The care needed to cope with these health issues can drain the most robust estate, leaving little-to-nothing for heirs.
“Long term care insurance is one way to offset this risk,” says Long Term Care Insurance Specialist Tobe Gerard. “These policies provide coverage for home care, assisted living, adult day care, nursing homes and hospice services. While long term care insurance is designed to protect assets, the bonus is that it protects the independence of the loved one requiring care who doesn’t want to be a burden to his or her family.”
Special thanks to Tobe Gerard, CLTC, MBA, MLS, LIA, Long Term Care Insurance Specialist, Tobe Gerard Insurance, LLC for contributing to this article.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2015 Advisor Websites.